Credit Score Factors

An individual's FICO credit score ranges from 300 to 850 and is determined via a number of factors. The specific formula used by the Fair Isaac Corporation is not revealed specifically as it is considered proprietary information. The general factors that do makeup the score are however known to the public, and consist of the following:

Payment History (35 Percent)-Thirty-percent of the credit score is based upon the payment histories of an individual's credit accounts found in their credit report. Whenever a payment is made late by a certain length of time, is missed completely, or is sent out for collection, a negative mark is ascribed to that particular person's credit report. Each of these negative marks contributes to the lowering of this metric, and the overall credit score. Payments made on time for extended periods of time can be viewed upon as positive marks, and can therefore boost a score. The combination of both positive and negative marks are valued appropriately and added up to equal this thirty-five percent proportion, which plays a significant role in the determination of the final credit score.

Debt to Credit Limit Ratio (30 Percent)-The debt to credit limit ratio is a fractional quotient that represents a person's overall utilization of their credit supply. A specific credit limit is reported for each credit card account a person has present within their credit report. So for example, if a person with three credit card accounts is utilizing 2,000 dollars on each card, and each account has a 10,000 dollar limit, then that person is utilizing 6,000 dollars out of the 30,000 dollars possible. The ratio would then be calculated by dividing the 6,000 by the 30,000, and in the end getting a twenty percent ratio, (6,000/ 30,000=0.20 x 100 = 20%). The ratio itself conveys a borrower's risk level to the lender-a 0-20% score is perceived as low risk, 20-50% is considered moderate risk, and anything over 50% is looked upon as a higher risk.

Length of Credit Accounts (15 Percent)-The amount of time an individual has had their credit accounts open makes up about fifteen percent of the score. The longer the accounts have been open the better, and lenders look upon the overall time a person has been issued credit as a universal indicator.

New Credit (10 Percent)-Opening any new credit accounts will affect a person's score in a negative fashion. Newer accounts are perceived as a higher risk by lenders, and therefore can adversely affect a credit score. Credit inquiries are also penalized and accounted for within this metric. Hard inquiries are the ones that convey a negative effect, while soft inquiries do not affect this metric at all.

Types of Credit Accounts (10 Percent)-This metric is determined by the number of different kinds of credit accounts a person has had open over time-the greater the variance, the higher the score. Practically speaking, lenders like to see that a borrower can handle different kinds of credit accounts, and that includes both a mixture of installment loans, and revolving credit accounts.

Taking all of these factors into consideration, a person can substantially increase their credit score if they know how to manipulate them accordingly.